Prescription For "Wholesale Pain" Cont'd

We have all heard some version of the story about the man who went to the doctor because he had a pain in his shoulder. After waiting patiently, he was finally called by the nurse and escorted into the examination room. After waiting a period of time, the doctor finally came into the room. After exchanging pleasantries, the doctor asked the man, “What seems to be the problem?” The patient explained to the doctor that every time he lifted his right arm above his head it caused him a great deal of pain. The doctor responded by saying, “If every time you lift your right arm above your head it hurts, just stop doing that.” 

This is a very trite analogy, but the point I am trying to make here is that those of us who have been in this business for any length of time have experienced what I will refer to as “wholesale pain.” It comes in varying degrees and it is never pleasant. Sometimes it hurts more than others, but each one of us has experienced it. We never ask for it on purpose and we all would like to know how to get rid of it and not let it recur. It is not just a matter of “stop doing that” and the pain will go away. Or is it? Maybe, Kenny Rogers put it best in his song “The Gambler,” when he sang, “You got to know when to hold’em and know when to fold’em.”

If there was a “magic pill” or prescription that would eliminate wholesale pain, would you take it? Unfortunately, there is no such thing as a magic pill, but there are many choices for curing this particular malady. By far, the most effective long-term remedy is to implement a comprehensive, daily inventory management system. The system must show us where we are long, where we are short and be very easy to use and understand. Every one of these “key” words is an active ingredient in formulating the prescription, and it will not work without all of these ingredients combined: IMPLEMENT, COMPREHENSIVE, DAILY, INVENTORY, MANAGEMENT, SYSTEM. These “key” words are defined as follows:
 
IMPLEMENT:
•      To carry out or to fulfill; to put something into effect or action
 
COMPREHENSIVE:
•      Including all; including everything so as to be complete; covering many things or a wide area

DAILY:
•      Done or occurring every day

INVENTORY:
•      A record of a business’s current assets (In this case, used vehicles)

MANAGEMENT:
•      The act of handling or controlling something, preferably successfully

SYSTEM:
•      A method or set of procedures for achieving something desired

Eliminating “wholesale pain” is simply choosing not to participate in vehicle segments that do not belong on your lot and having a system in place to identify these vehicles from day one. If it is wrong for your lot on day one, it is even worse on day 61. This sounds easy. The truth is that with a well-thought-out system, you can determine which ones are “right” and which ones are “wrong” for your store on the day of acquisition. If you know something is going to hurt, you are not likely to do it to yourself. The opposite is also true; if it is likely to “feel good” you probably would want to do it, and maybe more of it.

You must first come to the realization that your store cannot be all things to all people. Many factors play into determining why your customers are coming to your lot and what they are looking for. These factors include demographics, new vehicle franchises represented, reputation, lot size, location, advertising budget, sales people, inventory choices and many more. Some vehicle categories, model years and specific models simply cause you wholesale pain. When you determine what those specific categories and vehicles are, you can simply eliminate those vehicles from your inventory.

You should implement a system that will separate your sales, gross and inventory first by categories of vehicles (small cars, mid-size cars, sporty cars, full-size cars, small pickup, full-size pickup, small sport utility, large sport utility, mini van and regular van) and then by the eight most recent model years within each category. Your stocking guide must also include your target supply number for each category and model year including the number of units and the desired ready to go ACV. I suggest your target be no more than a 45-day supply. Most large used vehicle operations are now shooting for a 35-day supply.

Your stocking guide needs to be based on actual sales rate, not forecasts. This “ideal” stocking guide number should then be compared on a daily basis to the actual availability for each category and model year. If you are long or short in any category, develop an action plan with your managers to correct the condition. Daily vigilance in seeing that the action plan is being implemented is vital. Remember, in the absence of feedback, any behavior becomes acceptable.

Pictured below is an example of a very effective stocking guide for the small sport utility segment of a dealership.

The first two rows are what a 45-day supply of units needs to be with the corresponding front-line ready average ACV. These ideal stocking guide unit count numbers are based upon the stores’ actual retail sales histories and the ACV is the average cost of those sales. The next two rows show the actual number of units in inventory and corresponding ACV. The last two rows simply show us what action is required as it relates to the number of units and how much money we are over or under the stocking guide in real money.

We use this guide as a shopping list, an appraisal guide and inventory decision maker. As a shopping list, the above example clearly points out that we need 2004 small sport utilities with ready-to-go money around the $14,000 area. As the appraiser and decision maker, if the next trade you are evaluating happens to be a 2005 BMW X5 that is worth around 22,000, we know we want to trade for the vehicle if possible, but it doesn’t fit our stocking guide. So, the appropriate action would be to secure a buy figure on it, try it for 10 days and when/if it is still here in 10 days, cash it. Do not risk experiencing wholesale pain on something that simply doesn’t fit.

One of the most revealing facts that I have come across recently, as it relates to acquiring the correct inventory, comes from the Car Max annual report. Did you know that over 50 percent of the vehicles Car Max acquired came from “off the street” purchases directly from customers? Are you actively identifying areas of sales opportunities and acquiring inventory to fill these areas? If not, you are missing a tremendous gross opportunity and exacerbating the process of creating your own wholesale pain. 

Over the years, many managers have said they are “too busy” to use, or even look at, such a system. They “don’t want to get bogged down in details.” They know what sells and what doesn’t. In reality, many managers fear accountability and they want to keep the “secrets” to inventory management to themselves as some sort of perceived job security. If that is the case in your store, make a change either in the manager, the current process or the manager’s thinking. You should invest in an inventory management system, that will be implemented and used by all of your people all of the time. The benefits of this type of investment will far outweigh the cost. In closing, remember this: It is not very likely that you will begin achieving different results without changing current behavior.

If you would like to see what a stocking guide for your store would look like, please e-mail me a request for the stocking guide file. It is a simple-to-use Excel file that you can populate with your existing inventory and begin the journey on the road to recovery from wholesale pain.